Credit Swap Study Available Soon
Posted 04/01/08
A new Foundation study, How to Improve Your Risk Return Profile Using Credit Default Swaps, produced by Dr. Deborah Cernauskas of Northern Illinois University, and Dr. Andrew Kumiega of Illinois Institute of Technology, will be available soon. The study focuses on ways equipment finance companies may mitigate credit risk to allow for additional and conduct more business. While not every financier is using this vehicle, it is available. The study wil show how a credit default swap can be used to hedge the counterparty risk associated with a portfolio of leases and at the same time increase the net present value of uncertain lease cash flows.
Drs. Cernauskas and Kumiega assert that finance companies will find that the hedge reduces the variability of cash flows and increases the value of the firm. Additionally, the authors seek to illustrate a methodology to calculate the risk adjusted price for a lease based on the creditworthiness of the lessee.Other aspects of the paper include exploring the concept of creditworthiness and credit default swaps, offering a sample portfolio and evaluation of the use of credit default swaps to hedge default risk, and presenting a methodology for risk based lease pricing.
The paper will be available free to donors from the Foundation online store. Non donors may obtain the study for a fee of $200.
Sites of Reference:
http://www.leasefoundation.org/
